I have an empty database, created using rake db:create, when I run a rake db:migrate against it, I get mysql2 error. I'm running on rails 3.2.8, ruby - 1.9.3. I also tried by creating a new rails project, the rake db:create and rake db:migrate ran fine

Your gemfile is bigger than what you already posted? Not that it matters, as you'll notice SO makes the block scrollable if it's past a certain size. You should always post everything relevant.
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ClusterFeb 23 '13 at 9:30